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February, 1999
This article was written by the Consumers Union Southwest Regional Office.
Available in PDF Format.
 In BriefAlthough Texas' constitution and state law limits interest rates on small loans, some Texas companies ignore the state usury laws and charge interest far above the statutory caps. These companies say that they "do not make loans," and therefore the usury laws do not apply to them. But they advance money for a fee, and they advertise in the phone book in the "loan" section next to traditional small loan and pawn companies. Some, like FastFunding First in Austin, even use the word loan in their advertisement, while others refer to their fees as "interest." While there are several variations, these companies all advance money for an initial period of less than a month, taking a personal check as collateral. They typically charge $33 per $100 borrowed every 14 days, and borrowers may renew this "advance" over and over again, quickly repaying the lender in fees far more than was borrowed. This fee is the equivalent of nearly 800 APR interest. To ensure repayment, lenders threaten to cash the personal check. Without sufficient funds to cover it, the borrowers risk jail (on a "theft by check" or "issuance of a bad check" charge) if they cannot keep up with the steep "renewal" payments. Unlike other private creditors, these lenders use the local criminal court system as a collection agency. But, Texas's constitution bans imprisonment for debt. Justices of the Peace, seeking to limit the use of criminal laws to real criminal acts, are now among the officials calling for reform. |
